Once bullish, contrarian Jim Grant likes cash now

Hold Cash. Interest rates going to 10%. Stocks prices will decline, they are generally overpriced. Gold, you should own some; however there is risk that gold could decline if rates move to 10% and stocks decline. However, gold is better than long term bonds, in particular US government bond   Was a bull, but now  contrarian Jim Grant likes cash now 

pimco's bill gross frantically dumping treasuries thinks u.s. interest rates will soar: Tech Ticker, Yahoo! Finance

pimco's bill gross frantically dumping treasuries thinks u.s. interest rates will soar: Tech Ticker, Yahoo! Finance

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Economy Outlook - Marc Faber: We Have a New Gold Standard - CNBC

Marc Faber recommends:

Gold
Oil
Oil companies
Mining companies
XOM
CVX
SLB

Invest - 50% of your portfolio in emerging markets

Avoid US $, US Treasuries and Euro

Economy Outlook - Marc Faber: We Have a New Gold Standard - CNBC

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History lesson for economists in thrall to Keynes

Very good points by Niall Ferguson regarding why interest rates will be going up.
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From the FT London May 29, 2009 By Niall Ferguson May 29, 2009

On Wednesday last week, yields on 10-year US Treasuries – generally seen as the benchmark for long-term interest rates – rose above 3.73 per cent. Once upon a time that would have been considered rather low. But the financial crisis has changed all that: at the end of last year, the yield on the 10-year fell to 2.06 per cent. In other words, long-term rates have risen by 167 basis points in the space of five months. In relative terms, that represents an 81 per cent jump.

Most commentators were unnerved by this development, coinciding as it did with warnings about the fiscal health of the US. For me, however, it was good news. For it settled a rather public argument between me and the Princeton economist Paul Krugman.

....Of course, Mr Krugman knew what I meant. “The only thing that might drive up interest rates,” he acknowledged during our debate, “is that people may grow dubious about the financial solvency of governments.” Might? May? The fact is that people – not least the Chinese government – are already distinctly dubious.

....The policy mistake has already been made – to adopt the fiscal policy of a world war to fight a recession. In the absence of credible commitments to end the chronic US structural deficit, there will be further upward pressure on interest rates, despite the glut of global savings

Staying Rich in the New Normal

Bill Gross - June 2009
The obvious solution to both dollar weakness and higher yields is to move quickly towards a more balanced budget once a sustained recovery is assured, but don’t count on the former or the latter. It is probable that trillion-dollar deficits are here to stay because any recovery is likely to reflect “new normal” GDP growth rates of 1%-2% not 3%+ as we used to have. Staying rich in this future world will require strategies that reflect this altered vision of global economic growth and delevered financial markets. Bond investors should therefore confine maturities to the front end of yield curves where continuing low yields and downside price protection is more probable. Holders of dollars should diversify their own baskets before central banks and sovereign wealth funds ultimately do the same. All investors should expect considerably lower rates of return than what they grew accustomed to only a few years ago. Staying rich in the “new normal” may not require investors to resemble Balzac as much as Will Rogers, who opined in the early 30s that he wasn’t as much concerned about the return on his money as the return of his money.

Yardeni: Rising Yields Threaten Economy

Economist Edward Yardeni says the rise in bond yields and mortgage rates threatens to stall any economic rebound.

The founder of Yardeni Investments coined the term 'bond vigilantes' in 1983 to describe bond investors who dump their holdings when huge budget deficits threaten to spark inflation.

The bond market is full of concern that the government's huge budget deficit "eventually might lead to higher inflation," he points out.

Others agree. Economist James Bianco tells The Wall Street Journal, that the market figures the $1 trillion-plus deficit can't be financed without Fed assistance.

But that assistance has sparked the inflation worry, he says. "We're caught in a vicious cycle."

U.S. Fixed Income: Maintain Long Duration But Avoid Treasurys

From BCA
Investors should maintain long duration positions in non-government sectors, particularly in corporate bonds.

Dollar Is Dirt, Treasuries Are Toast, AAA Is Gone: Mark Gilbert

...."the sound of inevitability".

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May 21 (Bloomberg) -- The odds on the dollar, Treasury bonds and the U.S. government’s AAA grade all heading for the dumpster are shortening.

While currency forecasting is a mug’s game and bond yields can’t quite decide whether to dive toward deflation or surge in anticipation of inflation, every time I think about that credit rating, I hear what Agent Smith in the “Matrix” movies called “the sound of inevitability.”

China’s Stockpiles Are New Sovereign Wealth Strategy,

China is continues moving away from its US dollar investments. That just means higher interest rates on US debt and increase in commodity prices.

May 18 (Bloomberg) -- China is stockpiling commodities such as copper and iron ore as part of a reallocation of its sovereign wealth amid concern that the value of its dollar assets may decline, according to the Royal Bank of Canada.

“It’s part of an overall desire to decrease its exposure to dollar assets,” said Brian Jackson, senior strategist at Royal Bank of Canada in Hong Kong, in an interview today. China fears the hundreds of billions of dollars the U.S. is spending on bank bailouts and stimulus will cause “higher inflation and a weaker dollar,” he said.

Premier Wen Jiabao has said he is “worried” about the safety of the nation’s $767.9 billion in holdings of U.S. Treasuries and called on the U.S. “to guarantee the safety of China’s assets.” Central bank Governor Zhou Xiaochuan has proposed a new global currency to reduce reliance on the dollar.

Mortgages Over 5% Mean Fed Purchases as Bonds Slump

Big question...are interest rates going to continue up or will the government be able to reverse this trend and lower long term market rates?

May 11 (Bloomberg) -- The world’s biggest investors are increasing bets that Federal Reserve Chairman Ben S. Bernanke will boost purchases of Treasuries as the steepest losses on government debt since 1994 send mortgage rates above 5 percent.

The slump in Treasuries the past seven weeks pushed yields on longer-maturity bonds up by more than half a percentage point and sent average rates on 30-year mortgages to the highest since the start of April, according to North Palm Beach, Florida-based Bankrate.com.

“The Fed needs to consider increasing its purchases of Treasuries,” said Stuart Spodek, co-head of U.S. bonds in New York at BlackRock, which manages $483 billion in debt. Spodek said he resumed buying Treasuries. “We are still in a recession. It’s quite bad. They need to stabilize long-term rates.”

Treasuries lost 3.93 percent this year, according to Merrill Lynch & Co.’s U.S. Treasury Master index, after gaining 14 percent in 2008

If You Don't Watch This Chart, You're Going to Lose Money

Long bond yields keep on increasing and bond prices are falling.

Yields on the 30 year bonds have increased from 2.5% to over 4% in past few months. Wow!

Demand for funding government deficits are high and will push rates up.

Treasury Yields Reach Five-Month High as Fed Stands

As demand for funding by the government increases, so does interest rates. Anyone surprised? It appears a few fund managers have been.

May 2 (Bloomberg) -- Treasury 10-year notes declined for a sixth week, the longest losing steak in almost two years, as the Federal Reserve refrained from increasing purchases of government debt and the economy showed signs of stabilizing.

The capital well is running dry and some economies will wither

Interest rates could be heading up. Government debts and bail outs require funding.

From the UK Telegrahp April 26, 2009 -The world is running out of capital. We cannot take it for granted that the global bond markets will prove deep enough to fund the $6 trillion or so needed for the Obama fiscal package, US-European bank bail-outs, and ballooning deficits almost everywhere.

Weekly Market Briefing

From TSG Stock Market Letter
Week Ending April 24, 2009

Market
It has now been seven weeks since this rally began and this week
stocks took a break. Since hitting its low in the first week of
March, the S&P500 is up nearly 28%. Last week we mentioned that
the S&P500 index was 9.6% above its 50-DMA and that is about
where it stayed this week (9.5%) so stocks remain overbought.
But indexes are also still banging up against key resistance
areas that taken together with how overbought stocks are across
the board, increases the chances for a correction. And now this
rally is losing momentum. If prices hold up it will show that
investor demand for stocks is increasing despite the technicals
pointing to a drop. But that must be considered a long shot.

Interest Rates
US Treasuries with a net drop (redemption) of $97 billion in Treasuries by foreigners in February in the latest Treasury international capital flow (TIC) data. This followed a record net redemption of $148.9 billion by foreigners in January.

The government will have to sell $2.4 trillion in new bills, notes and bonds in fiscal 2009, according to an recent estimate by UBS. How does this compare with past Treasury sales? From October through December, the Treasury sold a record $569 billion, up a whopping 693% from the $82 billion it sold during the same period a year earlier, and auctioned another $493 billion in the last quarter up from $156 billion the year before according to Bloomberg, as the government increasingly finds itself squeezed between rocketing expenditures and collapsing tax revenues

Obama plan to raise tax revenues 40% by 2013 and the impact it will have on taxes and the economy. Unless the economy experiences a miraculous recovery, increasing the tax burden amid a declining economy is not only an extremely bad idea, it turns Treasury’s gargantuan task of financing the rapidly rising debt burden as spending soars into Mission Impossible.

What does this mean for traders and investors? First, this is inflationary because if history is any guide, the government will print more money and employ more helicopters from which to throw it into the economy, a methodology euphemistically labeled “quantitative easing.” The next all-too predictable development will be strong upward pressure on interest rates as U.S. Treasury investors demand higher returns to offset their losses due to increasing inflation.

In this increasing hostile investment environment, any investment strategy will need to take rising interest rates and increasing inflation into account.

US Treasury Needs to Raise more Cash

I wonder which way interest rates will be going. US Treasury needs to raise more cash as tax revenues fall.

“Tax receipts are just collapsing. [The need to sell more debt] is a big issue in the Treasury market and it is ongoing. The surging budget deficit is the primary cause.” Head Stamford UBS Securities interest-rate strategist Chris Ahrens.

US Treasury Bonds - 30 year

US Treasury Bonds look like they could be heading lower; higher interest rates coming?

Fed Ignites Markets with...

Quantitative easing (printing money). Interest rates fall, Bonds are up, Stock Markets up and of course with printing of money, Gold and Gold Stocks rocket up. Gold stocks up ~10% on the day.

Is it surprise? Think not....it was just a matter of time. We know the new US administration and direction that it is heading and what it means. So....there are no real surprises coming.

China must be real happy.


US Fed to Buy $300 Billion of Longer-Term Treasuries